An article in the Wall Street Journal stated that “Japan’s
cabinet approved a government stimulus package that
includes ¥7.5 trillion ($73 billion) in new spending, in the
latest effort by Prime Minister Shinzo Abe to jump-start
the nation’s sluggish economy.”
a. Draw an aggregate demand and aggregate supply
graph that shows where the Japanese government
expects the economy to be without the stimulus package. Briefly explain what you graph shows.
b. In the same graph, show the effect of the stimulus
package on the economy. Briefly explain what your
graphs shows.
Source: Mitsuru Obe, “Japan’s Shinzo Abe Fires Stimulus Gun,
Again,” Wall Street Journal, August 2, 2016.